News Analysis: In EU, nation-state appears to be back

Posted in Europe | 02-Mar-06 | Author: Katrin Bennhold and Graham Bow| Source: International Herald Tribune

European Commission President Jose Manuel Barroso speaks at a news conference at the EC headquarters in Brussels March 1, 2006.
PARIS Recent efforts by European governments to protect and forge national corporate icons herald a profound shift in Europe's economic and political landscape: the nation- state, generally dormant under mutual pledges of cooperation, appears to be back with a vengeance.

At a time when the European Commission is seeking to knit together a common identity and tear down remaining economic barriers, a string of hostile reactions in national capitals to a wave of cross-border mergers is the latest blow to an already weakened institution.

Divisions in the European Union before the Iraq war laid bare its failure to speak with one voice in foreign affairs. Last year's rejection of the proposed European constitution in France and the Netherlands called into question the idea of closer political union.

Now governments appear to be on a quest to reclaim the one area where the consensus of joining forces has always been strongest: the single European market.

"There is a resurgence of the nation-state in Europe," said Elie Cohen, a member of the Council of Economic Analysis, an independent panel of economists that advises the French government. "These nationalist and protectionist instincts are hard to reconcile with the idea of European integration."

To be sure, over the past two decades, politicians have sounded protectionist noises throughout the arduous process of opening Europe's patchwork of national markets.

But the recent outbursts risk creating a domino effect because they have been unusually frequent and aggressive. Worse, they come in a context of widespread skepticism toward the Union, which has triggered a political instinct among leaders to pander to voters fearful of seeing jobs migrate abroad.

In France, where the government brokered a merger over the weekend between Suez, a water and power company, and Gaz de France to thwart a possible rival bid by the Italian company Enel, Prime Minister Dominique de Villepin made it no secret that he would put France's well-being over Europe's.

"France will have one of the leading groups in the world," Villepin, a presidential hopeful, said at a news conference Wednesday. "The state will keep strong control in strategic decisions of the new group."

In Italy, politicians likened the situation to prewar Europe, and Romano Prodi, the opposition leader who is a former president of the European Commission, threatened to block future French takeover bids if he wins election in April.

Meanwhile, the Spanish government is seeking legislative ways to block a hostile bid of €29.1 billion, or $34.7 billion, by the German power giant E.ON for Endesa, a Spanish utility. Following French efforts to enshrine "poison pill" defenses against hostile takeover bids at home, some Italian officials are contemplating similar legislative changes, while Spain also seeks a way to block the E.ON bid by changing its laws.

The stirrings in the nation-states have led some critics to claim that the federal flame is dimming at the center. In particular, they say, the European Commission - the symbol of the central European project - has been neutered.

Certainly the commission's president, José Manuel Barroso, has had to accept slower integration. He now talks of a "Europe of projects," a French-inspired idea in which Brussels offers solutions to problems as they arise - and only when allowed by individual governments, overriding any grand ideological sweep or agenda from Brussels.

"We have to be realistic," Barroso said in a recent interview. "Now Europe will be projects based. We will be results based."

Such pragmatism may lack the urgency and idealist sweep needed to persuade Europeans that in an increasingly competitive global market, Europe's critical mass is indeed critical. Instead, the EU has come to symbolize the threats of globalization rather than a remedy.

But in a globalized world, European nations can hope to face the challenges of emerging competitors like China and India - or energy suppliers like Russia - only by joining forces, said Cohen, the member of the Council of Economic Analysis.

"Europe is weakening at a time when its critical mass is most needed," Cohen said. "The timing is a catastrophe."

Fears of globalization have been magnified by the enlargement of the EU in 2004, which brought countries from Central and Eastern Europe into the Union and has since caused a backlash among many western states against what they perceive as the competition these low wage and fast growing economies represent.

Much of the recent muscle-flexing comes ahead of the full opening of Europe's energy market in July next year. The deadline has prompted rapid consolidation in the energy sector and prompted governments to support their own national champions.

Political leaders, particularly in France and Germany, have shown a tendency to play to their voters' concerns rather than trying to defuse them, often attacking the European Commission in Brussels for policies aimed at opening and integrating markets further.

Last month the European Parliament diluted a landmark commission law aimed at opening up the EU's market in cross-border services. The measure included many exemptions and gave national governments continued powers to protect their services sectors after trade unions' protests and pressure from the governments in Paris and Berlin.

Daniel Gros, director of the Center for European Policy Studies in Brussels, is one who takes a different view of the rise in protectionist rhetoric. For Gros, the apparent rise in nationalism is not a serious threat to the EU's single market, but rather a symptom of how much the single market has already broken down borders in certain sectors. That progress, he said, has made Europe's economies ripe for cross-border mergers. Political resistance to this is both inevitable and temporary, he said.

"Ten years ago a takeover bid for an energy company would have been unthinkable - they were all monopolies," Gros said. "We have come a long way and what we're seeing now is a perfect déjà vu. It will blow over."

Few expect an unraveling of Europe's existing infrastructure. But many predict that the current malaise will stand in the way of bold steps. The nationalist reactions in recent weeks, said Cohen, are not just a blip but a result that has been coming for some time.

"The European idea has been crumbling for years, even though people tried to paper over the cracks," he said. "This is no longer about cracks. There are no more taboos."

Katrin Bennhold reported from Paris and Graham Bowley from Brussels.